The U.S. Bankruptcy Court for the Southern District of Texas approved Talen Energy Supply LLC's $1.55 billion equity rights offering backstop commitment.
The decision clears the way for the Riverstone Holdings LLC-backed power plant owner to market either 100% of its new common equity or substantially all of its assets, allowing the company to secure the equity capital to complete its reorganization plan by the end of the year, Talen Energy Supply, or TES, said in an Aug. 30 news release.
Judge Marvin Isgur signed the Aug. 29 order after the company secured a commitment of at least $1.3 billion and an additional $250 million of equity capital commitments. As of Aug. 10, the restructuring committee for Talen had already received "an unsolicited proposal to purchase 100% of TES in an all-cash transaction," the company said at that time.
"We appreciate the willingness of the consenting noteholders and backstop parties to upsize their equity investment in TES and provide the company with the opportunity to explore additional value-maximizing opportunities," TES CFO John Chesser said in the Aug. 30 news release.
Evercore is leading the sale, or "go-shop," process.
Talen filed for Chapter 11 bankruptcy protection on May 9 to resolve a liquidity deficit that began in 2021.
In December 2021, TES secured an $848 million first-lien revolving credit facility, allowing the independent power producer to avoid potential liquidity issues ahead of the winter heating season. The company expected its cash deficit to reverse in early 2022 as natural gas prices climbed, according to a May 10 bankruptcy court filing. However, a requirement to pay off $114 million of unsecured notes due in 2021 left little collateral available for hedging contracts.
Colstrip arbitration
On Aug. 25, Isgur separately allowed TES — whose subsidiary Talen Montana LLC operates the coal-fired, 1,480-MW Colstrip plant — to pursue arbitration with other plant owners over a long-standing dispute about the plant's future and resolve a Montana District Court lawsuit filed in 2021.
Other Colstrip owners include Puget Sound Energy Inc., Portland General Electric Co., Avista Corp. and PacifiCorp, considered collectively by the bankruptcy court as the "PNW Owners," as well as NorthWestern Corp.
As part of the bankruptcy proceedings, Talen Montana is seeking the recovery of remediation costs that Talen Energy's former owner, PPL Corp., allegedly transferred out. In November 2014, when Talen Montana was doing business as PPL Montana LLC, the cash proceeds from an approximately $900 million sale of its hydroelectric assets to NorthWestern were improperly distributed to PPL, according to a May 10 filing reiterating a 2018 lawsuit that remains pending in a Montana court.
The PNW Owners, all headquartered in Oregon or Washington, are bound by both states' commitments to exit coal-fired generation by 2025. Meanwhile, Montana Gov. Greg Gianforte in 2021 signed into law two bills seeking to extend the life of the Colstrip plant. Talen and NorthWestern have not pledged to exit the coal-fired generation business by the end of 2025.
"We just don't want to prematurely suggest that Colstrip's economic life is ending because someone picked an arbitrary date of 2025," Debra Raggio, senior vice president and regulatory and external affairs counsel for TES parent Talen Energy Corp., told Montana state lawmakers during a May 19 hearing.
Talen Energy has committed to exiting coal generation, expanding battery storage and co-investing in about 1,400 MW of utility-scale renewable energy projects over the next five years. Coal comprises a bit more than one-third of the company's owned generating capacity, according to S&P Global Market Intelligence data.
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